EIIB tapping oil wealth
Dubai, June 16, 2007
European Islamic Investment Bank plans to raise up to $600 million of funds to tap the thriving niche market driven by rising petrodollar wealth.
Industry watchers estimate the total liquid assets of high-net-worth individuals, with financial assets over $1 million, are worth more than $700 billion, and will grow at roughly 10 per cent a year for the next few years.
However, financial institutions need to make extra efforts to structure products that comply with Sharia.
To meet the strong demand among high net worth private client needs in the Middle East, Asia and Europe, EIIB is launching five different funds to raise as much as $600 million.
EIIB offers Sharia-compliant financial products.
'Middle Eastern investors have been very focused on local real estate markets, local equity markets. Our funds provide geographic diversification,' said John Weguelin, managing director of EIIB.
The Alternative Investment Market-listed bank rolled out a pan-European real estate fund in February, and will launch three equity funds and a private equity fund focusing on the health care and medical sector in September.
EIIB is also advising the British government in exploring the Islamic bond market, the Sukuk, which took off five years ago.
Including subsidiaries of conventional banks, there are roughly 270 Islamic banks around the world, holding assets estimated at $270 million, according to consulting firm McKinsey.
Countries from Bahrain to Malaysia are racing to create Islamic banking hubs to serve the 1.2 billion Muslims around the world.
HSBC, for example, have created separate brands, Amanah and Noriba, respectively, for their Islamic offerings. And Maybank in Malaysia and Samba Financial in Saudi Arabia have opened special branches that sell products that comply with Sharia.
But the burgeoning Islamic financial market still faces many challenges. Sharia committees appointed by individual banks can apply very different standards to rule whether new products are compliant.
The differences in product structures across countries and from one bank to another limit cross-border expansion and mergers and acquisitions options.
Islamic banks are also forced to focus on short-term products as a liquid market for Islamic fix-income instruments almost does not exist.
London-based EIIB earned $2.4 million in 2006, down 6.6 per cent from a year ago. Its shares trade about 60 per cent below its initial public offering price of 25 pence each.
Shares of the Islamic Bank of Britian, which in 2004 became the first bank licenced by a non-Muslim country that operates entirely in line with Sharia law, have also fallen about 87 per cent after hitting a record high in April 2005.
'I'm confident we will be profitable in 2007, profits are meeting expectations,' Weguelin said. Reuters